(1) Where the place of arbitration is situate in India,—
(a) in an arbitration other than an international commercial arbitration, the arbitral tribunal shall decide the dispute submitted to arbitration in accordance with the substantive law for the time being in force in India;
(b) in international commercial arbitration,—
(i) the arbitral tribunal shall decide the dispute in accordance with the rules of law designated by the parties as applicable to the substance of the dispute;
(ii) any designation by the parties of the law or legal system of a given country shall be construed, unless otherwise expressed, as directly referring to the substantive law of that country and not to its conflict of laws rules;
(iii) failing any designation of the law under sub-clause (ii) by the parties, the arbitral tribunal shall apply the rules of law it considers to be appropriate given all the circumstances surrounding the dispute.
(2) The arbitral tribunal shall decide ex aequo et bono or as amiable compositeur only if the parties have expressly authorised it to do so.
(3) While deciding and making an award, the arbitral tribunal shall, in all cases, take into account the terms of the contract and trade usages applicable to the transaction.
Legal Commentary & Landmark Judgments: Section 28
Section 28 of the Arbitration and Conciliation Act, 1996 prescribes the rules applicable to the substance of the dispute, mandating that domestic arbitrations shall be decided in accordance with the substantive law in force in India, and requiring the tribunal to take into account the terms of the contract and trade usages.
In final arguments before the arbitrator, anchor every claim and defense directly to specific contractual clauses and industry trade usages; an award that contradicts unambiguous contractual prohibitions is vulnerable to being set aside under Section 34.